Composition scheme opt-in and filing (CMP-08 / GSTR-4)

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Composition Scheme Opt-In and Filing

Regular GST asks for a lot from a small shop. Monthly or quarterly returns, invoice-level reporting, reconciliations with supplier data, and an annual return on top. For a trader with modest turnover and few purchases, the effort can cost more than the tax itself. The composition scheme was designed for exactly that situation: pay a small flat percentage of turnover, file less often, and keep the paperwork simple. But the scheme has strict entry rules, a fixed window for joining, and its own filing calendar. Getting composition scheme opt-in and filing right is mostly about timing and eligibility, and about knowing what you give up in return.

This guide explains who can use the scheme, how to opt in, which returns and payments follow, what mistakes to avoid, and where the limits lie. It is general information, not tax advice for any particular business.

What Is the GST Composition Scheme?

The composition scheme is an optional simplified scheme under Section 10 of the CGST Act for small taxpayers. Instead of charging GST on each sale and claiming credit on purchases, a composition dealer pays tax at a flat rate on turnover from their own pocket. The rates are generally 1% for manufacturers and traders, 5% for restaurants not serving alcohol, and 6% for eligible service providers who opt in under the special provision. The tax is split between CGST and SGST, so a 1% rate means half a percent to each.

In exchange, the dealer gives up input tax credit, cannot collect GST from customers, issues a bill of supply instead of a tax invoice, and files returns on a lighter schedule: a quarterly payment statement in Form CMP-08 and an annual return in Form GSTR-4.

Why Composition Scheme Opt-In and Filing Needs Planning

Unlike many GST decisions, the scheme cannot be joined at any moment. An existing taxpayer opts in before the start of the financial year, generally by filing Form GST CMP-02 on or before 31 March of the preceding year. For FY 2026-27, that window closed on 31 March 2026. The next opportunity for existing taxpayers is to file by 31 March 2027 for FY 2027-28. New businesses can choose the scheme at the time of registration, in the registration application itself.

Because of this, a decision made in March shapes your tax compliance for the next twelve months. Choosing the scheme when you should not, or missing the window when you should have used it, can cost real money.

Eligibility Before Composition Scheme Opt-In and Filing

You can generally opt in if your aggregate turnover in the preceding financial year does not exceed:

₹1.5 crore for most suppliers of goods, including manufacturers and traders, and restaurants. In certain special category states, a lower limit of ₹75 lakh applies.
₹50 lakh for eligible service providers choosing the separate service-provider option at 6%.

There are other conditions. A composition dealer generally:

cannot make inter-state outward supplies
cannot supply goods through e-commerce operators who collect tax at source
cannot supply notified goods such as ice cream, pan masala, and tobacco products
cannot collect tax from customers or take input tax credit
must not be engaged in certain excluded activities
must have all registrations under the same PAN opt in together, so you cannot mix regular and composition status across GSTINs of the same PAN
must keep services within the permitted limit if also making goods supplies (broadly, the greater of 10% of turnover or a small fixed amount)

Check whether you are close to any of these before deciding. A business that sells even occasionally across state lines, or through an e-commerce platform, is usually not eligible.

Is the Composition Scheme Right for You?

The scheme saves effort, but it is not always cheaper. A trader who earns a thin margin may find that 1% of turnover is a small price for fewer filings. A manufacturer with large input purchases and heavy GST on inputs may lose more by giving up credit than they save in compliance. Customers who are registered businesses may also prefer buying from a regular dealer because they can claim credit on the invoice, and some will not buy from composition dealers at all. A restaurant with a modest turnover may value the 5% flat rate, while a service provider should compare 6% of turnover against what they would pay under regular GST after credit.

A useful test is to compare your likely tax under both options for a typical quarter, including the cost of accountant time, and to think about whether your customers will accept bills of supply.

How Composition Scheme Opt-In Works

For an existing taxpayer:

Check eligibility. Confirm turnover for the preceding year, the nature of your supplies, and the conditions above.
File Form CMP-02. Log in to the GST portal and go to Services, then Registration, then Application to opt for composition levy. Do this before the start of the financial year.
Declare eligibility. Complete the declaration and sign with a digital signature or EVC.
Reverse credit on stock. File Form GST ITC-03 to pay back input tax credit on goods held in stock on the day you switch, within the prescribed period, generally 60 days.
Start billing correctly. From the first day, issue bills of supply, and do not charge GST separately.

New registrants can select the composition option in their registration application, and the scheme applies from the date of registration.

Composition Scheme Filing: What You File and When

Form CMP-08: quarterly payment statement. You report your turnover and pay tax each quarter. It is due by the 18th of the month following the quarter, which means 18 July, 18 October, 18 January, and 18 April. As of today, the statement for July to September 2026 was due on 18 October 2026, and the next one, for October to December, is due on 18 January 2027. If you missed the October date, file as soon as possible, since interest on late payment and a late fee apply.

Form GSTR-4: annual return. This consolidates the year’s information. The statutory due date is 30 April following the financial year, but the government has extended it to 30 June in recent years, and many current guides treat 30 June as the working date. Because sources differ and notifications change, confirm the due date for the year on the GST portal before you rely on either date.

Other forms. CMP-04 is used to withdraw from the scheme, for example when you cross the turnover limit or no longer meet a condition. You must withdraw promptly, within the time the rules prescribe, and then follow regular GST rules from the date you cease to be eligible.

Records and Billing Rules

A composition dealer should keep sales and purchase records, stock records, and bills of supply. Each bill of supply should carry the words “composition taxable person, not eligible to collect tax on supplies”, and your business board should display “composition taxable person”. These are not formalities. They protect customers from being misled and protect you from penalties.

Preparing for Composition Scheme Opt-In and Filing

Before opting in, spend a short time on these points:

Total up your aggregate turnover for the preceding financial year, across all your registrations under the same PAN.
Review whether you make or will make any inter-state or e-commerce supplies.
Compare your tax cost under composition and regular GST for a typical quarter.
Estimate the value of ITC on your closing stock, since you will have to reverse it.
Check how your key customers feel about bills of supply.
Diarise the CMP-02 date, the CMP-08 dates, and the GSTR-4 date.
Set up billing software to produce bills of supply with the required wording.
Keep your digital signature or EVC details ready.

Common Mistakes to Avoid

Missing the opt-in window is the most common, since it cannot normally be fixed mid-year. Others opt in without checking that all GSTINs under the same PAN qualify, or continue making inter-state sales and discover too late that they are ineligible. Some forget to file ITC-03, which creates a credit mismatch. Many composition dealers keep issuing tax invoices or charge GST to customers, which is not allowed. Confusing the due date of GSTR-4 with the old date and paying late fees is also frequent, as is forgetting CMP-08 for a quarter with no sales, since a nil statement is still required. Finally, some dealers cross the turnover limit and do not withdraw on time, which can result in tax, interest, and penalty demands.

Understanding the Limits

General guidance on composition scheme opt-in and filing can help you check eligibility, plan the timing, and understand the forms, but it cannot choose for you. The right decision depends on your margins, customers, supply pattern, and growth plans, and the rules, thresholds, and due dates can change. If your business mixes goods and services, has several registrations, sells online, or is near a turnover limit, a GST practitioner or chartered accountant should check the position before you file.

How Calling Daddy Can Help

Many small business owners know the composition scheme exists but are unsure whether they qualify, when they must file, and what they must stop doing once they are in. Calling Daddy helps businesses understand eligibility, the opt-in window, and the filing calendar, and helps them organise their records before they apply. We will always tell you plainly when your case needs a GST professional rather than general guidance.

Frequently Asked Questions

1. What is the composition scheme under GST?
It is an optional scheme for small taxpayers who pay a flat percentage of turnover as tax and file simplified returns, without claiming input tax credit.

2. What is the turnover limit for the composition scheme?
Generally ₹1.5 crore for goods suppliers and restaurants, ₹75 lakh in certain special category states, and ₹50 lakh for eligible service providers under the separate option.

3. How do I opt in to the composition scheme?
Existing taxpayers file Form CMP-02 on the GST portal before the start of the financial year. New registrants can choose it in the registration application.

4. What is the deadline to opt in for FY 2027-28?
Generally 31 March 2027, subject to any notification.

5. What are the composition scheme tax rates?
Generally 1% for manufacturers and traders, 5% for restaurants, and 6% for eligible service providers.

6. Which returns does a composition dealer file?
A quarterly statement in Form CMP-08 and an annual return in Form GSTR-4.

7. Can I claim input tax credit under the scheme?
No. A composition dealer cannot claim input tax credit and cannot collect GST from customers.

8. What happens if I cross the turnover limit?
You must withdraw from the scheme using Form CMP-04 and follow regular GST rules from the date you become ineligible.

Final Thoughts on Composition Scheme Opt-In and Filing

The composition scheme can save a small business a lot of time, but only if you qualify, join at the right moment, and keep up with its simple but strict calendar. Careful composition scheme opt-in and filing, with the right billing and a clear view of what you are giving up, keeps compliance light and avoids surprises. If you are unsure whether the scheme suits your business, reach out to Calling Daddy and take the first step with clarity.